Tax Changes Galore
The widely-promised, massive $1.35 trillion tax plan is finally upon us, and it leaves no part of your financial life untouched, from your income tax rate to your retirement contributions. What do you need to know to take full advantage of the new tax laws? THAT MONEY SHOW invited Gary Schatsky, a fee-only financial advisor, president of ObjectiveAdvice.com (http://www.objectiveadvice.com), and a board member of the National Association of Personal Financial Advisors to tell us what we need to know right now to make the most of the new tax laws in the current year, and next year.
Your Tax Rates
We're experiencing a small reduction in tax rates as of July 1, but there will be more reductions in the coming years. With that in mind, if you've got money coming to you, you might try to delay the payments for a year or two to take better advantage of the new rates that will be implemented. If you're getting a year end bonus, ask you boss to give it to you in January, instead of December. You could save a good percentage of your money that would otherwise go to Uncle Sam.
Tax-Deductible Contributions
If you have deductions, or you're thinking of making charitable contributions, do it today, rather than two or three years from now. Your tax rates will probably be lower then, so you won't get as much advantage then as you might this year.
Retirement Funds
There's been a lot of talk over the years about raising the maximum annual contribution to retirement funds. The new plan will phase in a few important changes over several years. 401(k) retirement funds are currently capped at $10,500 per year, but the maximum will jump over several years to $15,000. IRAs are capped at $2000 per year, and will increase by $1,000 a year until the cap reaches $5,000. Remember, the more you put in now, the better your retirement income will be. So if you've got it, start saving.
Estate Taxes
Under current estate laws, you can give away $675,000 free of estate tax to any non-spouse. (You can give any amount to a spouse.) Over the next few years, however, estate gifts will be made tax-free up to $1.5 million, and then will become entirely free for one year, in 2010.
Marriage Penalty Tax
Under current tax law, some married couples may pay more taxes living together than they would if they weren't married. When the newly-enacted tax laws take effect in 2005, the marriage tax penalty will be removed.
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